E10-7 (Static) Calculating Return on Investment, Residual Income, Determining Effect of Changes in Sales, Expenses, Invested Assets, Hurdle Rate on Each [LO 10-4, 10-5]

Kaler Company has sales of $1,210,000, cost of goods sold of $735,000, other operating expenses of $148,000, average invested assets of $3,400,000, and a hurdle rate of 12 percent.

Required:

1. Determine Kalers return on investment (ROI), investment turnover, profit margin, and residual income.

2. Several possible changes that Kaler could face in the upcoming year follow. Determine each scenarios impact on Kalers ROI and residual income. (Note: Treat each scenario independently.)

a. Company sales and cost of goods sold increase by 15 percent.

b. Operating expenses increase by $73,000.

c. Operating expenses decrease by 10 percent.

d. Average invested assets decrease by $285,000.

e. Kaler changes its hurdle rate to 9 percent.